The IRS wants to develop a method for detecting whether or not individuals have overstated their deductions for charitable contributions on their tax returns. To assist in their efforts, the IRS supplied data found in the file DAT9-&.xlsx (attached), listing the adjusted gross income (AGI) and charitable contributions for 11 tax-payers whose returns were audited and found to be correct.
A. Prepare a scatter plot of the data. Does there appear to be a linear relationship between these variables?
B. Develop a simple linear regression model that can be used to predict the level of charitable contributions from a return's AGI. What is the estimated regression equation?
C. Interpret the value of R2.
D. How might the IRS use the regression results to identify returns with unusually high charitable contributions?
See attached file.
1. See attachment for the scatter plot. It does appear to have a linear relationship.
2. The model excel has developed is y = 159.7x - 6169.9, where x is the adjusted gross income, and y is charitable contributions.
Scatter plot & Linear Regression for IRS to detect overstated deductions for charitable